By Nirbhay Lumde
Every business enterprise is deeply intertwined with Environmental, Social, and Governance (ESG) matters. There is a more significant push to commit to ESG efforts. ESG has attracted attention from all stakeholders – investors, consumers and governments. ESG is important as it creates high value, drives long-term returns, and global stakeholders are paying attention to the topic. It is important to note that ESG provides an overview of its performance. ESG can be viewed as a non-financial performance of an enterprise and build insight into long-term value. ESG is primarily defined as a triple-bottom-line approach that combines financial gains adhering to social and environmental norms. Moreover, ESG aspects have also become global standards of reporting and disclosures.
Investopedia defines Environmental, Social, and Governance as a set of standards for a company’s operations that socially conscious investors use to screen potential investments. Environmental criteria consider how a company performs as a steward of nature. Social measures examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights.
ESG stands for Environmental, Social and Governance of an enterprise. Environmental is all about an enterprise focus and action leadership around energy usage, waste management, and natural resources conservation. It also encompasses carbon emissions, climate change and going green. Social deals with an enterprise relationship and reputation with its employees, customers, stakeholders, institutions and the larger community. It is also about employee retention, labour relations, diversity, and inclusion. Governance is all about how an enterprise manages with the proper management structure, executive compensation and ensuring stakeholder rights, especially employees, shareholders and customers. It also includes systems and networks in giving back to the community where it is operational.
With the push for the Sustainable Development Goals and the climate action movement gaining momentum, the sustainability reporting landscape is changing rapidly around the globe. It is essential to understand the concept of business responsibility and the evolution of ESG reporting in India. ESG reporting in India started in 2009 with the Ministry of Corporate Affairs, Government of India, issuing the National Voluntary Guidelines on Corporate Social Responsibility (NVGs). In 2012, the Securities and Exchange Board of India (SEBI) mandated that the top 100 listed companies by market capitalisation file the Business Responsibility Report (BRR) based on NVGs along with annual reports.
CSR activities have been made mandatory under The Companies Act, 2013 for companies falling under the prescribed category. In 2015, BRR was extended to the top 500 listed companies by market capitalisation.
Integrated Reporting (IR) was introduced by SEBI in 2017 voluntarily for the top 500 companies required to prepare BRR. National Guidelines on Responsible Business Conduct (NGRBC) came in 2019. The same year, SEBI has extended the BRR to the top 1,000 listed companies by market capitalisation.
Business Responsibility and Sustainability Report (BRSR) was introduced in 2021. The reporting landscape in India has come a long way from the introduction of the Business Responsibility Report (BRR) in 2012 to the addition of the Business Responsibility and Sustainability Report (BRSR) in 2021. BRSR is a standardised reporting format that will give a baseline to compare environmental, social and governance goals across companies and sectors. It is essential to understand the value of the introduction of BRSR as it embraces and incorporates metrics of international frameworks on par with global ESG reporting trends.
A glimpse of the alignment of BRSR’s with ESG pillars is as follows. Environmental aspect covers energy and Green House Gas/ scope emissions; solid waste management; water consumption and withdrawal; 3R practices; sustainable sourcing; Extended Producer Responsibility (EPR); Life Cycle Assessments (LCAs). The social aspect includes employee well-being; workers’ health and safety; training; human rights; social impact assessment; gender equality, representation of women at the top levels; CSR activities and details of beneficiaries. Governance indicators include anti-corruption and anti-bribery policies, conflict management process; retention policies; remuneration policies; stakeholder engagement. BRSR should emerge as a single source for sustainability disclosures related information in India. It would serve as a base document for stakeholders to compare enterprises in making wise investment decisions.
According to Bloomberg, it is estimated that by 2025, investments with high-performing ESG metrics will reach USD 53 trillion, which is more than a third of the USD 140.5 trillion in projected total assets under management. Are you ready for the ESG revolution? The PWC report states that the ESG agenda encompasses reporting, strategy, and business transformation. Interestingly, the report’s subtitle reads that societal needs and business opportunities are coming together to transform the way companies craft strategy, drive performance, and report results. The report states that senior executives would play a pivotal role in leading the ESG transformation.
The far-reaching effects of ESG transformations mean success is dependent on the focus and drive of senior leaders. To begin with, senior executives need to connect ESG initiatives with the organisation’s overall direction. In addition, a critical priority for leaders is to back up their ESG initiatives and aspirations with actual investments. The report mentions that the impetus for business to address ESG issues and opportunities is likely to continue to grow, spurred by investors and shareholders, governments and policymakers, employees, suppliers, customers, and citizens more broadly. ESG initiatives will also create opportunities to identify and realise significant new sources of value creation.
The time ahead in India is undoubtedly fascinating with effective compliance frameworks in place for non-financial disclosures and is the next step in mandatory ESG reporting in India.
(The author is Director – Sustainability and CSR, CGI Asia Pacific Global Delivery Centers of Excellence. Views expressed are personal and do not reflect the official position or policy of the Financial Express Online.)